Binance Holdings Ltd., the world’s largest cryptocurrency exchange, Wednesday reversed itself and said it’s nixing a tentative agreement to acquire competitor Sam Bankman-Fried’s FTX for an undisclosed amount.
“Our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help,” Binance said in a statement reported by the Wall Street Journal Wednesday. The company added in a tweet Wednesday: “As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com.”
The latest announcement follows an epic 48-hour saga between the two exchanges that started over the weekend when Binance announced on Sunday that it would be liquidating its holdings of FTX’s native token FTT. That created a sudden liquidity crisis for FTX as users rushed to the exchange to withdraw from their accounts and generated rumors of insolvency.
“This afternoon, FTX asked for our help. There is a significant liquidity crunch,” Binance Chief Executive Changpeng “CZ” Zhao had tweeted Tuesday morning. He said the company has “signed a non-binding [letter of intent], intending to fully acquire http://FTX.com and help cover the liquidity crunch.”
FTX CEO Bankman-Fried confirmed the news on social media, stating that Zhao had been one of the firm’s first investors. In a tweet, he stated that “things have come full circle, and FTX.com’s first, and last, investors are the same.”
According to the agreement, Binance was to acquire the non-U.S. portion of FTX’s company. As a result, FTX.US will remain independent of the deal and will continue to operate on its own.
However, on Wednesday it became apparent that the deal was still quite uncertain. Zhao emphasized that it’s a nonbinding letter of intent, meaning he could back out at any time. Indeed, earlier Wednesday, Coindesk cited an unnamed source as saying Binance might scrap the deal.
The initial agreement on a deal cames on the heels of a backlog of withdrawals by FTX customers being sluggish and a report from The Block that showed that withdrawals may have been suspended. However, there was also evidence that withdrawals were not suspended and were continuing apace, just slowed down due to a large backlog.
“There is a lot to cover and will take some time,” Zhao said. “This is a highly dynamic situation, and we are assessing the situation in real time. Binance has the discretion to pull out from the deal at any time. We expect FTT to be highly volatile in the coming days as things develop.”
During the rumors of insolvency and the liquidity crisis, the FTT token’s price dropped as low as $14.58 this morning upon reports of the withdrawal suspension and jumped as high as $19.01 with the news of the acquisition, according to CoinMarketCap.
“Our teams are working on clearing out the withdrawal backlog as is,” Bankman-Fried said in a tweet about the news. “This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. It may take a bit to settle etc. — we apologize for that.”
Bankman-Fried noted that much of the media coverage about the token liquidation was covered as a “conflict between” FTX and Binance, but he commented that instead, “Binance has shown time and again that they are committed to a more decentralized economy” and “working to improve industry relations with regulators.”
“We are in the best of hands,” he said.
Binance is the largest crypto exchange by volume, representing over $34 billion in trades in the past 24 hours up to Tuesday morning, according to CoinMarketCap. FTX is the second by volume with $3.8 billion in the past 24 hours.